Protecting business assets in a divorce in California

On behalf of Gary, Till, Burlingham and Lynch posted in property division on Thursday, October 25, 2018.

Many couples in Sacramento have entered into a marriage without considering the possibility that a divorce may change their lives unexpectedly. Some couples have attempted to co-own and manage a small business without considering the possible effect of a divorce on their respective interests in the business. If and when a divorce occurs, splitting the business can prove to be a problem.

One of the most effective ways to protect an interest in a close corporation is the creation of a prenuptial agreement. Such an agreement can specify how the shares will be valued and how they will be distributed. If the company was started from scratch during the marriage, and the company has no shareholders beside the married couple, the business will be considered part of the couple's community property and divided accordingly. Another effective method of dividing corporate ownership is a post-marital agreement, but such documents are not always easy to negotiate.

Another method of anticipating and minimizing disputes over dividing the business interest is the creation of a corporation or limited liability corporation. Such entities are separate legal entities that can own and convey property. Careful accounting that separates business assets and income from personal assets and income can ease both the valuation of the business and the mechanics of separating the joint interests.

A third method is to maintain a clear separation between the business and the marriage. In other words, the ill feelings that doomed the marriage should, to the greatest extent possible, be kept out of the business relationship.

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